Limited Brands Sales Rise - Analyst Blog

Limited Brands Inc. (LTD), a specialty retailer of women’s intimate and other apparel, beauty and personal care products, recently posted better-than-expected sales results for the four-week period ended November 26, 2011 on the heels of healthy sales at its Victoria's Secret Stores and Bath & Body Works.

The owner of Victoria's Secret Direct and La Senza chains has sustained its growth momentum. Limited Brands’ comparable-store sales for November 2011 rose 7% following an increase of 6% in October 2011 and compared with a 10% jump in November 2010.

Comparable-store sales for November increased 11% at Victoria’s Secret Stores & Victoria’s Secret Beauty and 6% at Bath & Body Works & The White Barn Candle Co. but declined 7% at La Senza. Sales at Victoria’s Secret Direct dropped 3%.

Limited Brands, which competes with Gap Inc. (GPS) and Hanesbrands Inc. (HBI), said that net sales for November fell 2.3% to $872.6 million from $893 million posted in the same month last year.

For the forty-three week period ended November 26, 2011, comparable-store sales surged 10%, whereas net sales jumped 9.5% to $7,721 million from $7,050 million reported in the prior-year period.

Limited Brands is also actively managing its cash flows, and returning much of its free cash via dividends and share repurchases. The company announced a special dividend of $2 per share payable on December 23, 2011, to shareholders of record as of December 12, 2011. Considering this dividend, the company would have returned $12 billion to stockholders since 2000.

Management expects to generate free cash flows of about $700 million during fiscal 2011, and exit the year with a cash balance of about $800 million, taking into account the special dividend that has been declared.

Let’s Conclude         

The company’s Bath & Body Works segment is gaining traction, driven by a rise in store transactions, enhancement in the direct channel business and growth in new stores. Victoria’s Secret Stores have been performing well, and the company is also revamping its La Senza brand.

Limited Brands is keen to augment its retail footprint across the globe by expanding aggressively in Canada and other international markets. Moreover, the company’s strong liquidity positions it for growth and higher return. However, stiff competition and erratic consumer behavior still remain concerns.

After the Black Friday sales blast, there is cynicism in the market whether the success of weekend sales could be replicated in the upcoming holiday season, or consumers who have now become more rationale about spending will tighten their purses. However, the efforts of retailers to convert store traffic into business cannot be decried who are trying to lure customers, and it definitely remains a wait-and-watch story as to who emerges successful in wooing consumers in this distressed economy.

Currently, we have a long-term Neutral recommendation on the stock. Moreover, Limited Brands holds a Zacks #3 Rank that translates into a short-term Hold rating.

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